Microsoft ready to lose more money online
Microsoft plans to continue to invest (read: lose money) in online services.
Microsoft CFO Chris Liddell
(Credit: Microsoft)
In its fourth-quarter earnings conference call on Thursday, Microsoft CFO Chris Liddell said the company would pour hundreds of millions of additional dollars into its online advertising business.
"We do not make these investments lightly," said Liddell, who noted that the loss will be "a drag" on the rest of the company. However, he said it is worth the cost, given how the size of the online advertising market is measured in tens of billions of dollars.
Liddell noted that the market is projected to grow to $80 billion by 2012, making it one of largest potential growth areas for Microsoft.
That may be true, but it's also an area that is experiencing near-term weakness, weakness that Liddell said reared its head last quarter and is expected to continue at least for the next six months.
Pressed by an analyst as to when Microsoft might see its online business stop being a drag on the bottom line, Liddell said he wasn't going to give a forecast for 2010 or 2011.
"I can't promise you you are going to see a massive turnaround in the short term," he said.
Liddell said two-thirds of Microsoft's planned spending increases are related to driving increased search business.
Microsoft's plans include more toolbar programs with computer makers, deals with other software makers and Internet service providers, as well as a faster rollout of its Live Search Cashback program. The company will also look at more vertical acquisitions, he said.
Microsoft's decision to invest more in the business came during the quarter, Liddell said, as a deal with Yahoo seemed less likely--especially after Yahoo made its own deal with Google..
Liddell also outlined Microsoft's latest proposal to Yahoo, a search deal that he said has revenue guarantees of $19.5 billion to $26.5 billion over 10 years.
For the first five years, Microsoft guarantees $2.3 billion. After that, both companies have an option to renew the deal, but at very different prices. If Microsoft unilaterally renews, it has to pay Yahoo $3 billion, while Microsoft's guarantee drops to $1.6 billion if Yahoo alone wants to renew.
"We continue to believe our proposal is a compelling one," Liddell said. Yahoo also detailed the offer in a regulatory filing, but reached a very different conclusion on the value presented by Microsoft's offer. Yahoo says in its filing, which consists of slides it is presenting to investors, that the $3 billion guarantee is below what Yahoo expects to be making 5 years to 10 years from now.
During her years at CNET News, Ina Fried has changed beats several times, changed genders once, and covered both of the Pirates of Silicon Valley. These days, most of her attention is focused on Microsoft. E-mail Ina. 
It is the online services they made a loss, some due to acquiring other small companies for that division. They will need to spend (Invest) more into that area of business if they are ever going to earn anything from there b'cos that market belongs to Google. Microsoft can't snatch that from Google so will have to fight for second place.
- by Kwasiowusu July 19, 2008 3:29 PM PDT
- @ Orion Blastar , first of all both Vista and Office continue to make HUGE profits for Microsoft. Second of all, the 360 made a profits of over $400 last year. Third of all, Google?s earnings came in below expectations so much so that Google?s share price fell by 10% just yesterday. Also it might be worth pointing out that Microsoft makes more in profits than Google, and IBM combined, and has more money in the bank than Google , IBM, and HP combined, and a market cap bigger than Google or IBM or HP. If anyone is going to take over anyone, its going to be Microsoft doing the taking over.
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